SEC Division of Corporation Finance Acting Director John Coates argued against claims by some practitioners and commentators that Special Purpose Acquisition Companies ("SPACs") may face lesser securities law liability in the context of a "de-SPAC" transaction than traditional IPOs. Mr. Coates asserted that the liability risks associated with disclosures in the "de-SPAC" transaction (i.e., the second stage business combination transaction in which SPACs issue equity to target owners) could in some ways be higher than in conventional IPOs due to the potential conflicts of interest in the SPAC structure. Mr. Coates explained that the disclosure for a de-SPAC business combination transaction is subject to a number of securities liability provisions, including that:
- a registration statement is subject to SA Section 11 ("Civil liabilities on account of false registration statement");
- a proxy solicitation is subject to SEA Section 14(a) ("Proxies") and SEA Rule 14a-9 ("False or misleading statements"); and
- a tender offer is subject to SEA Section 14(e) ("Tender offer").
Mr. Coates stated that given this legal landscape, "no one gets a free pass" for material misstatements.
Mr. Coates also considered the limitations of the safe harbor provided in the Private Securities Litigation Reform Act ("PSLRA"). He noted that the safe harbor excludes statements in connection with an offering of securities by a blank check company, a penny stock issuer and an initial public offering. Unlike a blank check company and a penny stock issuer, however, an initial public offering is not defined in the PSLRA nor in any SEC rule. Therefore, the phase may include a de-SPAC transaction as it is the transaction in the two-stage process in which a private operating company "goes public." This possibility calls into question any sweeping claims regarding liability risk being more favorable for SPACs than traditional IPOs.
Mr. Coates suggested that it may be time to provide greater clarity on the scope of the safe harbor in the PSLRA. Specifically, Mr. Coates recommended that the SEC "reconsider and recalibrate the applicable definitions," or provide guidance regarding the scope of the PSLRA safe harbor for de-SPACs.
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